question archive Imagine you own a concession stand that sells hot dogs, peanuts, popcorn, and beer at a stadium
Imagine you own a concession stand that sells hot dogs, peanuts, popcorn, and beer at a stadium
Subject:FinancePrice: Bought3
Imagine you own a concession stand that sells hot dogs, peanuts, popcorn, and beer at a stadium. He has three years left on his contract with the stadium and he does not expect it to be renewed. Long lines limit sales and profits. You have come up with four different proposals to reduce queues and increase profits. The first proposal consists of a remodeling, adding another window; the second is to update the equipment of the existing windows. These two remodeling projects are not mutually exclusive; could carry out both projects. The third and fourth proposals imply leaving the current position: the third proposal consists of building a new position; the fourth proposal to rent a larger booth at the stadium. This option would imply an investment of $ 1,000 for the installation of new signs and equipment; the incremental cash flows shown in subsequent years are net of lease payments. You have decided that a 15% discount is appropriate for this type of investment. The incremental cash flows associated with each of the proposals are as follows: Incremental cash flow (in dollars) Draft Investment Year 1 Year 2 Year 3 Add a new window. -75,000 44,000 44,000 44,000 Update existing equipment. -50,000 23,000 23,000 23,000 Build a new post. -125,000 70,000 70,000 70,000 Rent a bigger stall. -1,000 12,000 13,000 14,000 Perform: The calculation of the Internal Rate of Return for each of the projects The calculation of the Net Present Value for each of the projects The calculation of Discounted Payback Period for each of the projects Summarize the ranking of projects according to IRR and according to NPV. Bibliography: Edleson, M. (1993). Investment Analysis and Lockheed Tri Star Case: Harvard Business Publishing. Generating question: Taking into account the results of the three different methods, answer: Using the IRR rule, which one (s) of the proposals do you recommend, why? Using the VPN rule, which one or which of the proposals do you recommend, why? How do you explain the differences between the rankings of the IRR and the NPV? Which do you consider to be the best for your decision making and what would be your investment recommendation? How does the recovery period help your analysis?
